Review And Update
On Thursday and Friday, the markets mustered a “Pre-G20 rally” in anticipation of a positive outcome from the meeting between President Trump and Xi. I will discuss the outcome of this meeting in just a moment.
The good news is that June was one of the best performing months for the over the past 80-years.
Dow Jones Index
That certainly was an impressive rally if you bought into the markets on June 1st.
Unfortunately, what the headlines don’t tell you is that the “strongest June rally in the last 80 years” failed to recover the losses from one of the worst May months on record as well.
In other words, most investors simply recovered previous losses.
SPX 500 Index
However, as noted, the rally was something we had expected and discussed repeatedly in this weekly missive.
“In the very short-term, the markets are oversold on many different measures. This is an ideal setup for a reflexive rally back to overhead resistance.”
The question now is “how much more rally is there to go?”
As we noted in last Tuesday’s update:
“Steve Deppe also made an important observation Twitter that when the has gained at least 2% in a week and finished at a new weekly high — the case on Friday — the S&P was lower six weeks later 70% of the time.”
S&P 500 Table
Much like an engine, markets operate on “fuel.” In other words, when there is a lot of “pent up” demand for equities, prices rise as demand is filled, and buyers are willing to pay higher prices to “get in.” The opposite is also true.
Also, prices are also confined by long-term moving averages. These moving averages, act like gravity, so when prices deviate